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Financial crisis unprecedented

WASHINGTON - THE financial crisis sweeping the global economy is one of the most serious challenges ever, leading to a sharp slowdown in growth, US Treasury Secretary Henry Paulson said on Saturday.

'As we meet today, risks to the global economic environment are the most serious and challenging in recent memory,' Mr Paulson told the International Monetary Fund annual meeting.

'The financial turmoil over the last year, coupled with significant ongoing financial deleveraging, commodity price shocks and necessary adjustments in housing and other markets are causing a sharp slowdown in economic growth,' he said, according to the prepared text of his speech.

Mr Paulson said that while the crisis was affecting the main advanced economies most acutely, emerging market countries, despite recent progress made, 'are not immune from the global financial stress.' The secretary said this 'is a very challenging period for the United States, as well as the global economy', noting that with the credit markets frozen, the financial crisis was now spreading into the wider economy.

'These extraordinary events require a global response and financial officials from around the world are working together, taking action individually and collectively as necessary, to address these challenges.'

The focus of policy was on five areas - providing liquidity, strengthening capital, protecting investors, enlarging the macroeconomic response and improved regulation.

Mr Paulson said that 'once we are past this difficult period, we must turn our attention to longer-term reforms to modernise our outdated financial regulatory structure and address other weaknesses'.

Turning to the IMF itself, Mr Paulson said 'a strong and effective IMF is firmly in the interest of the United States and the international community' but cautioned it against casting its net too wide.

'As it reviews its lending role, the Fund must keep its core mission in mind and resist seeking creative ways to boost lending for its own sake. We are skeptical of proposals to significantly increase access levels for lending.'

The IMF and World Bank are holding their annual meetings in Washington this weekend against a backdrop of untold upheaval as a credit crunch sparked by the US subprime home loan collapse undermines the accepted norms of financial life.

The crisis has so far overshadowed the meetings. -- AFP

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